This document summarizes key aspects of contract law in Nepal. It discusses how contracts must be performed precisely according to their terms. Only the promisee has the right to demand performance, though there are exceptions for beneficiaries, joint promisees, and family settlements. Performance can be done by the promisor, an agent, or legal representative. Contracts become void if performance becomes impossible due to changes in circumstances. Rights and obligations can be assigned, except for contracts that are personal in nature.

1. Legal Environment for Business in Nepal
December 2016
Saroj Shrestha 1

2.  ‘Performance of Contract’ means ‘fulfillment of
obligation’ by contractual parties.
 A contract must be possible to perform.
 The general rule is that performance of contract
must be precise and exact.
 Under section 74 of Contract Act, 2056 – “Each
party to a contract shall fulfill their obligations
under the contract.”
 The contract is automatically discharged when the
specified purpose of the contract fulfilled by the
parties.”
Saroj Shrestha 2

3. Section 71 of Contract Act, 2056 has
mentioned about the method of
performance-In case the time and
procedure of performance of performance
is prescribed in the contract, it shall be
performed within the specified time and as
accordance to the specified procedure.
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4. 4
 Performance should be unconditional
 Performance should be precise and exact
 Performance must be entire and not of a part only
 Performance must be made at proper time, place
and to the proper person
 The Person making performance must be able
and willing to perform
 The promisee party must be given reasonable
opportunity to examine the performance of
promises (goods or services).

5. Who can Demand the Performance of a
Contract ?
 The Promisee Party: Only the person to whom the
promise was made (promisee) has the right to ask for
performance .
 Other persons can not ask (whether they are
indirectly related or affected to the benefit)
performance of the contract.
 Privity of Contract
 ‘Privity of Contract’ is a legal doctrine. It confers
rights and imposes liability only on the contracting
parties. This rule is developed in the common law
system. Saroj Shrestha 5

6. 
 However there are some exception developed in
this common law system to this rule. Under section
78(1) of Contract Act, 2056 provides and exception
to the beneficiary party that ‘in case the contract has
been signed for the benefit of any person, such
person may demand the execution of that contract
even if he is not a party to that contract.’
 The Other parties: In exceptions to the rule of
privity of contract, a stranger to the contract also has
a right to demand performance.
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7.  The other persons also can demand performance of
contract in the following cases:
◦ In case of a beneficiary: Even if he is not a party
◦ In case of ‘joint promisees’: In case of joint
promises(which means more than one promisee) jointly enter
into a contract, may demand performance of contract. The
following rules are applied in this regard
◦ If all the promisee are alive, all of them have to demand the
performance of contract jointly.
◦ In case of death of any joint promisees, their legal
representative can demand the performance jointly with the
surviving promisees.
◦ In case of death of all the joint promisees, all of their legal
representative can jointly demand the performance of
contract. 7

8.  In case of ‘family settlement’ (Partitions,
maintenance or marriage expenses): The family
members can sue for the recovery. i.e. provisions
of partition of the common code of Nepal
 In case of ‘contract of agency’, the principal can
sue on it if his agent has made the transaction
with third party
 In case of ‘Assignment of contract’, the assignee,
through he/she was not an original party to the
contract, can sue for the benefit.
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9. 1. By the promisor himself: If a contract is
created on the ground of personal nature (skill,
qualification, talent or credit) it has to be
performed by the promisor himself. i.e. Service
Contract for painting a picture.
A party to a contract cannot transfer the
obligation to any other persons without the
consent of the other parties.
2. Performance of joint promises: A joint
promise may be performed by any of the
following:
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10. ◦ When several joint promisors make a promise with a
single promise, they have to perform it jointly. i.e. A,B
and C jointly promise to pay Rs. 1000.00 to X
◦ Where a single promisor makes a promise with several
promisees he has to perform it jointly. i.e. A has to pay
Rs. 1000.00 to XYZ jointly.
◦ Where several promisors make a promise with several
joint promisees they all have to perform it jointly to the
joint promises.i.e. A, B and C jointly promise to pay Rs.
1000.00 to XYZ jointly, other rules are similar to the case
of joint promisees.
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11. 3. By the promisor or an agent: If a contract is
not a personal nature, it can be performed by the
promisor or his agent i.e. a contract of sale of
goods
4. By the Legal Representative: The legal
representative of a promisor may fulfil the
promise on behalf of the promisor formally or
officially.
o After death: In case of death of the promisor before
the performance, the liability falls on his legal
representative automatically, if otherwise is not
provided in the contract. The following rules are
applied: 11

12.  In case of contract of personal nature, it can not
bind his legal representative and comes to an end.
 The legal representative is liable only to the
property she/he received from the decreased
promisor.
 In case of a breach of contract and uncovered
liability, legal representatives will not be liable,
personally.
 In lifetime: A promisor may fulfill his/her liability
through his/her legal representative. “Adhikrit
Wareshnama”
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13.  Section 79 of Contact Act, 2056 has made the
provision that , contract need not be performed in
the event of fundamental changes (in the situation
prevailling at the time of contract becomes
impossible to perform the contract). Those are the
following causes:
 Where contract becomes illegal, therefore that
cannot be performed
 Where impossibility of performance of contract
emerges due to the nature calamity war, soil
erosion, flood, earthquake etc which are beyond
the control of human beings.
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14.  Where there is destruction of subject matter or
non-existence or not obtainable circumstances.
 Where the promisor dies or become insane (if
contract is of personal nature).
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15.  To assign means to ‘transfer’ or to ‘delegate’.
 Assignment of contract means transfer a piece of
works, rights or liabilities created by the contract
to a third party.
 Depend on the facts and nature (personal or
impersonal) of the contract. i. Contract is not
assignable, if it is of personal nature (ii) Contract
is assignable, if it is of impersonal nature.
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16. By Act of the parties
1. Assignment of contractual liabilities:
Contract not involving the personal skill is
assignable.
2. Assignment of contractual rights:
The rights and benefits under a contract not
involving personal nature, may be assigned. The
creditor can assign his rights to a third party. It
takes place with or without a reference to the
debtor.
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17. There are certain circumstances on which the law
becomes active and contractual rights and
obligations assigned automatically.
1. Death or insanity of the party: In case of
death or loss of senses of any party, the rights
acquired from the contract may be assigned to the
legal heir to his/her property. The heir will be liable
to the extent of the property received.
2. Insolvency: In case of insolvency of a person (or
Business firm) his/her rights and liabilities incurred
precious to adjudication pass to the official
receiver or assignee.
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18.  Such a type assignment of contract is to be made
in writing and in a formal way.
3. Subrogation: In case a contract has been
signed with the provisions to have any such right
or damage borne by any person, such loss or
damage shall be realized from that person, under
the principle of subrogation.
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19. 19Saroj Shrestha
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